SME financing reaching milestone; an overview.

Byline: S. Kamal Hayder Kazmi

Many economic experts mention that the Small and Medium Enterprises (SME) sector is contributing 30 percent towards Pakistan's GDP, employ greater than 80 percent of non-agricultural workforce and generate 25 percent in export earnings. Thus, SME sector has huge potential for employment generation and poverty alleviation. However, unlike large enterprises in the formal sector, a SME is constrained by financial and other resources. This inherent characteristic of an SME makes it imperative that there should be a procedure by which it may get support in dissimilar functions of business counting technical upgradation, marketing, financial and human resource training and development.

Present statistics showed that SME financing through banks in the country has first time crossed the milestone of Rs 500 billion. SME financing was registered at Rs 513 billion at the end of 2018 as against to Rs 450 billion in the same period last year, showing a growth of 14 percent. According to the State Bank of Pakistan (SBP) statement, the growth in SME financing was even more prominent in the previous 6-month of 2018 (July-December, 2018) wherein it posted a rise of 25 percent. This rise in SME financing attracts greater significance keeping in view the fact that SBP policy rate during 2018 recorded a growing trend. Because of continued focus of SBP for facilitating SMEs access to formal sources of finance, SME financing rose considerably during FY2018. The substantial rise in SME financing is chiefly attributable to implementation of the policy for promotion of SME finance released through SBP in December 2017. Experts also recorded that SME are the companies that have limited businesses activity.

Structure Of Interest Rates In Pakistan (As on Feb 1, 2019 (%))

w.e.f###SBP Reverse Repo Rate###SBP Repo Rate###SBP Policy (Target) Rate

18-Nov-13###10###7.5###A

17-Nov-14###9.5###7###A

26-Jan-15###8.5###6###A

24-Mar-15###8###5.5###A

25-May-15###7###5###6.5

14-Sep-15###6.5###4.5###6

23-May-16###6.25###4.25###5.75

29-Jan-18###6.5###4.5###6

28-May-18###7###5###6.5

16-Jul-18###8###6###7.5

1-Oct-18###9###7###8.5

3-Dec-18###10.5###8.5###10

1-Feb-19###10.75###8.75###10.25

Commonly, SMEs are the startup firms or already operating companies with limited financing. By a standard textbook definition; SME is characterized by the company having a number of employees and various amounts of financial assets. According to OECD, SMEs are...